NHDRA issues guidance on Covid relief for Granite State businesses
New rule spells out taxability, eligible deductions for state, federal funding
The New Hampshire Department of Revenue Administration has issued guidance aimed at helping taxpayers understand the business tax implications of state and federal Covid-19 financial relief programs.
Under the guidance, all state-level relief distributed to taxpayersrequired to file a BPT return – from the state’s portion of federal CARES Act funds – should be included as income for business profits tax purposes, the agency said.
However, any state-level relief taking the form of a loan should not be included as income for BPT purposes, unless that loan is forgiven or otherwise discharged, it added. But the DRA said taxpayers can continue to take deductions for deductible business operating expenses, even when those expenses are paid for with state-level relief. That means only the portion of the funds not spent on deductible business expenses will be subject to taxation.
Expenses that are generally not deductible include distributions made to owners or shareholders, the payment of personal expenses of owners, or certain disallowed entertainment and meal expenses.
The DRA also said that any state-level relief received by taxpayers required to file a business enterprise tax return that is used to pay wages or other compensation to employees, interest or dividends shall be included in the enterprise value tax base of the business and subject to the BET.
Under the DRA’s guidance, all federal-level Covid-19 relief should be included as income for BPT purposes, although not if it is a loan, unless the loan is forgiven or otherwise discharged. Similar to the treatment of state-level relief, taxpayers are permitted a deduction for the expenses of operating a business, even if paid for with federal-level relief.
That means that federal Paycheck Protection Program loans that are ultimately forgiven, as they’re designed to be, won’t be taxable federally but should be included as income for BPT purposes.
The agency said the difference is because the BPT statute includes a version of the Internal Revenue Code that was in effect prior to the CARES Act, which means the state tax statute doesn’t recognize the federal tax treatment of Covid-19 relief contained under federal laws.
In addition, federal-level relief received by BET filers that is utilized to pay wages or other compensation to employees, interest, or dividends shall be included in the enterprise value tax base of the business and subject to the BET.